Call for stronger partnership with Asia to cushion impact of global econ crisis : IMF Dep. MD
The International Monetary Fund (IMF) wants to work more closely with Asia to lessen the impact of the global crisis on the region and to help promote sounder and stronger growth globally, David Lipton, IMF First Deputy Managing Director, said this week.
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| David Lipton |
Mr Lipton, in his first major speech since his appointment late last year to the IMF management position, told participants at the Asian Financial Forum in Hong Kong that "Asia's economies today are strong and showing great promise, in part because of the reforms introduced courageously, and not without painful consequences, when Asia faced its own crisis in the nineties.
But now it is problems in the rest of the world, Europe in particular, that pose a risk to Asian prosperity. Now, Asia has a stake in seeing Europe solve its problems and even in playing a role in that process. "Beyond that, Asia has its own challenges, both in the near and longer term," Mr. Lipton warned, but "by working together, more and better than in the past, Asia and the IMF can help ensure stability and prosperity for the region and for the world," he added, in comments released by the IMF to the media. Reflecting on the global outlook, Mr. Lipton observed that "at the global level, the pace of economic activity is weakening, and the risks for Europe and the world are high."
But, he stressed, "rather than allow ourselves to be paralyzed by pessimism, it is time to focus on the more hopeful perspective of working our way through this crisis. If there is good news, it is that we know what policies are needed, and we are busy trying to muster the finance to support those policies." Without bold action however, "Europe could be swept into a downward spiral of collapsing confidence, stagnant growth, and fewer jobs. And in today's interconnected global economy, no country and no region would be immune from that catastrophe. This is especially true for Asia," Mr. Lipton said, reflecting its tight trade and financial links with Europe.
He said Asia emerged from the 2008 financial crisis with its global standing strengthened and called on Asian policy makers to stay the course with fiscal normalization to rebuild buffers eroded since the 2008 crisis; pause monetary tightening as long as inflation forecasts remained within central banks' targets; ensure liquidity and funding in the banking sector; and further reduce external vulnerabilities by lengthening debt maturities, securing credit lines and further expanding currency swap arrangements, either bilaterally or through the multilateral Chiang-Mai Initiative. Mr. Lipton added that "should downside risks materialize in force, policymakers in Asia would need to respond swiftly, as they did in 2008/2009." "As Asia goes forward, the IMF stands ready to be a partner," Mr Lipton said, adding that "the IMF learned important lessons from Asia's experience that we are now applying to programs across the globe, including in Europe."
Two areas he singled out where the IMF's work can support the region's interests are enhancing economic and financial surveillance for crisis prevention, and strengthening the global financial safety net-including sharper surveillance of economic spillovers and macro-financial linkages, but also new lending tools, such as the precautionary credit line, specifically tailored for crisis by-standers.
Efforts are also underway to better integrate IMF resources with regional reserve pooling arrangements like the Chiang Mai Initiative and enhance cooperation with them.
At the same time, Asia looks set to take a bigger role at the IMF," Mr. Lipton said. He noted the importance of an increased role for Asian members within the IMF, which is reflected among other recent developments in the package of quota and voice reforms that were agreed in 2010.
These reforms will increase emerging Asia's representation by more than a quarter, with Japan and China the second- and third-largest shareholders and India also in the top 10. Asian nationals are now 40 percent of the IMF's management team, and the IMF will hold its 2012 Annual Meetings in Tokyo in October 2012.
"Given its rise as an economic powerhouse, it is only natural that Asia's voice in the IMF should become increasingly influential," Mr. Lipton noted.
While all eyes are on Europe right now, "by working more and better together, Asia and the Fund can help bring about sustained economic growth-for the region and for the world," Mr. Lipton said.
"This is what we are doing" : Cabraal
The IMF's First Deputy Managing Director's comments evoked a 'happy' response from Sri Lanka's Central Bank Governor Ajit Nivard Cabraal who said this is what the Central Bank has been doing. "It you look at our roadmap announced on January 3 we are talking the same language - stretching the debt and raising liquidity in the market, etc, etc," he said, adding that "having too much in foreign reserves is not a good thing because it comes at high cost."
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| Ajit Nivard Cabraal |
The Governor's critics, mainly from the opposition and some independent economists, have slammed the Central Bank for ad-hoc policy-making particularly on the exchange rate. President Mahinda Rajapaksa in Budget 2012 announced a 3 % devaluation of the Sri Lanka rupee amidst complaints from exporters that an unrealistic rupee rate was negative to exports and also making Sri Lankan exports uncompetitive. Critics say the Central Bank has used over a billion dollars to sustain the rupee, thereby eating into the reserves which have fallen to over $6 billion from $8 billion at one time.
According to the Central Bank roadmap for 2012:
-Monetary Policy will be formulated so as to achieve mid-single digit rates of inflation, going forward into the medium term -Given that Sri Lanka is a developing country, it is unlikely that a target of a very low single-digit inflation would be optimum, as structural bottlenecks still persist.
-Broad money growth would be designed to accommodate the growth while ensuring the achievement of the mid-single digit inflation.
-Assuming favourable domestic supply conditions, international commodity prices remaining reasonably stable, and international crude oil prices remaining at around the current levels.
-Consumer price inflation based on CCPI is expected to be maintained at between 5 and 6% in 2012 .
-Inflation as measured by the GDP deflator is expected to be around 7.7% in 2011 compared to 7.3% in 2010.
-But, a moderation in price pressures is expected over 2012 thereby bringing down inflation as measured by the GDP deflator to around 6.5% in 2012 .
-The Balance of Payments is expected to record a surplus of around US$ 825 million.
-Although the deficit in the trade balance is likely to expand further, that will be cushioned by:
4Earnings from tourism projected at US$ 1.2 billion
4Worker remittances, projected at US$ 6.5 billion
4FDI, projected at US$ 2.0 billion
-Higher inflows will help create a favourable investment climate in the country, which will, in turn, augment the country's growth potential.
-Policy interest rates will continue to serve as a key monetary policy instrument of the Central Bank and the policy interest rate corridor approach will be continued.
-The exchange rate will be viewed as a key stabilisation factor of the economy.
-Growth of broad money is targeted to be around 15%, on average, in 2012 -This growth of the money Supply is believed to adequately facilitate the expansion of economic activity in the year ahead .Reserve money would be targeted to grow by around 15% on a daily average basis, in 2012 .Private sector credit is expected to moderate and reach around 16% .Foreign inflows will be actively encouraged to address the Savings-Investment gap and will show a marked increase
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